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  • Writer's pictureMichele Correa

Asset Vs. Liability

This one is simple and not so simple.

An Asset is anything that puts $ in your pocket.

A Liability is anything that takes $ out of your pocket.

An investment property purchased correctly that cash flows is an asset...after paying all the expenses and debt servicing, the positive amount of cash flow you receive makes it an asset. It adds money to your balance sheet instead of subtracting from it.

If you have purchased an investment property that does not cash flow every month (and why would you do that?! , unless it is in the stabilizing/renovation phase), it is a liability. It is taking money away from your balance sheet instead of adding to it.

For most people a vehicle is usually a liability. It takes $ out of your pocket every month - even if you don't have a loan, there is still insurance, gas (or electricity costs), and maintenance. Now if you have turned your car into a business and it makes you money every month after all the costs of running it, then it would be an asset.

Most people think of their personal home as an asset when in fact it is usually a liability. Unless you have figured out a way to live in it and still have positive cash flow come in from it for example house hacking, it is usually a liability - it takes money out of your pocket every month. This is a hard one to wrap your head around as if you are like most people, their house is part of their retirement plan. They hope the equity in their house when they retire, will help them financially.

Real estate investing is allowing us to build up other streams of income so that we are not relying on the equity of our home at retirement. In fact, we are working with that equity in our home right now to invest in real estate. This way the equity is not just sitting there doing nothing. It is working for us and getting us closer to our retirement goals. Is your house in the asset section of your balance sheet or the liability side?

Reach out to us if you would like to not rely on the equity of your home or on the government for retirement and we can chat about how we are preparing for retirement with different investment income streams. We are doing this on an active basis and a passive basis, and you can decide if one of those ways is right for you and your goals.



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